Markets to get a cautious start; RBI’s policy action to give further direction

The Indian markets made a good recovery in the late trade of last session, taking cues from the decline in inflation numbers, albeit a marginal one. Today all eyes will be on the RBI’s monetary policy review, where it is widely expected that the central bank will go for at least a 25 basis points rate (bps) cut, if the RBI surprises with a 50 bps cut the markets are likely to surge and if it happens the realty and the auto companies will be the most to cheer. The IIP numbers have been showing sluggish trend and RBI has said that it would shift the focus to arresting declining growth while keeping inflation under control. There will be some buzz in the power stocks as well, as Coal India has agreed to sign fuel supply agreements (FSAs) with power companies in a few days but it will pay only a marginal penalty for default. The board of the company has decided to bring down the penalty to 0.01% of the value of shortfall and the trigger point is at 80%. The penalty clause will be effective after three years from now.

Apart from the RBI policy meet some important result announcements will keep the markets buzzing. IFCI, SKF India, Goa Carbon etc will be announcing their numbers today.

The US markets made a mixed closing on Monday, Dow rallied supported by the better-than-expected retail sales numbers, though heavy selling in the tech sector dragged down the other major indices. The Asian markets too have made a mixed start with some indices trading lower by quarter to half a percent. The positive data from US is being countered by the concern of spreading European sovereign-debt crisis after the cost to insure Spanish and Portuguese debt advanced. Japanese market was trading higher after the country said that it will provide $60 billion to the IMF’s effort to expand its resources and shield the global economy against any deepening of Europe’s debt crisis.

Back home, stock markets in India made a cautiously optimistic start of the vital week as the frontline indices settled on a positive note after suffering over two percent cuts in the previous week. Monday’s session turned out to be an extremely range bound one with the benchmarks see-sawing around the neutral line through the day. Despite the weak trades in early session and some hiccups in mid noon trades the key gauges concluded the session with modest gains of around one third of a percent and sailed above the psychological 17,150 (Sensex) and 5,200 (Nifty) levels. Markets participants at large overlooked the monthly WPI inflation data which largely remained unchanged in March as it came in at 6.89% as compared to 6.95% for the previous month. The markets traded with a positive bias for most part of the session as it became increasingly certain that in the backdrop of weak February industrial production numbers and slight moderation in March WPI inflation to 6.89% v/s 6.95% in February, the Indian central bank, which remains in a tight corner a day ahead of its annual monetary policy review meet, would start the liquidity easing cycle by cutting key interest rates. Investors piled up hefty positions in the interest rate sensitive Banking, Realty and Automobile counters amid expectations that the lower manufacturing inflation print would give comfort for the RBI to deliver a 25 bps rate cut. While the Capital Goods pocket too gained traction in the session on the back of ease in core inflation numbers. The local bourses even went on to outperform all their Asian peers in the session which traded with notable losses. However, the European markets after starting on a cautious note, climbed to higher levels, providing a much needed support to domestic markets. However, the information technology counters continued to languish at the bottom of the table with around half a percent extending the brutal butchery they suffered in the previous session after bellwether Infosys announced its gloomy guidance for the year. Finally, the BSE Sensex gained 56.44 points or 0.33% to settle at 17,150.95, while the S&P CNX Nifty rose by 18.75 points or 0.36% to close at 5,226.20.